am
The Reform Institute, June 30, 2008
The Smart Alternative:
Securing and Strengthening Our
Nation’s Vulnerable Electric Grid
Kenneth R. Nahigian
With an increasing focus on developing and utilizing alternative energy sources to ensure a secure and
reliable energy supply, the need is becoming abundantly clear for a modernized energy infrastructure
capable of facilitating such innovation and enhancing America’s resilience. The essence of resilience is
the ability of our Nation to identify, prepare for, respond rapidly to, and recover from any possible
catastrophic event. The practical adoption and implementation of a next-generation electrical- power
grid – Smart Grid – will reduce the consequences of the electrical grid being targeted by terrorists or
adversely affected by a natural disaster while improving energy efficiency and reliability.
EXECUTIVE
SUMMARY
The U.S. electrical
power grid – installed
more than a half century
ago – has provided
energy successfully to
our homes and
businesses for many
decades and is a critical
component of our
national defense and
infrastructure. It affects
nearly every aspect of
our daily lives. But the
grid quickly is reaching
the end of its design

“Critical national
security and Homeland
defense missions are at
an unacceptably high
risk of extended outage
from failure of the
[electrical] grid.”
– Defense Science Board Task Force Report,
2/08

cycle and in its current state
soon will no longer serve
the rising energy demand of
consumers or our national
resilience. Simply put, the
evidence is clear that
modernization of the
existing grid – currently
comprised of a patchwork
of energy-inefficient fixes
mending an overburdened
system – not only is
inevitable, but vital to our
national security and ability
to recover quickly in the
event of a catastrophe.
The Reform Brief is a publication of the Reform Institute, a nonprofit, nonpartisan public policy
organization advancing a solutions-based reform agenda.
The Reform Brief examines important public policy issues on the national agenda regarding topics
such as government reform, homeland security, energy independence and the environment,
economic policy, and immigration reform.
More Reform Institute publications can be found at www.reforminstitute.org.
[Type text]
The Reform Institute, June 30, 2008
Hampered by rising demand, a lack of
consumption through demand response, and
investment in transmission facilities, and
integrate renewable energy resources into
federal policies that deter increasing
grid operations. This smart system allows
domestic energy supply, the existing grid
utilities to understand demand and regulate
has been taxed to the limit and lacks the
supply, and most importantly for the
capacity to meet the Nation's growing
purposes of resilience, either reallocate
energy demand.
electricity during times of crisis or peak
The existing grid does not possess the
demand or prevent outages through
capability to mitigate the occurrences of
proactive diagnosis of the grid and its
blackouts and their adverse
individual elements.

consequences, provide
The Smart Grid offers
incentives to consumers to
the next generation of
The
DOD’s
national
reduce consumption, or
power delivery and furthers
improve environmental
strategic and
the ability of the grid to
impacts through the
continue to provide power
command
authorities
utilization of more
in the immediate wake of a
renewable resources.
rely on 99 percent of catastrophic event. But the
These inadequacies place
Smart Grid’s benefits span
their
energy
supply
in peril our national,
far beyond resilience as a
economic, and
modernized grid would
from “outside the
environmental security and
have a dramatic positive
fence.”
are unsuited to meet the
impact on the environment

long-term demands of the
by lowering consumption
digital age. The task of
and increasing the
hardening our critical infrastructures –
utilization of renewable energy sources, and
including our military installations – against
provide incentives and control for
a catastrophic event must begin with efforts
consumers and businesses to make decisions
to bring resilience and security to the
regarding their individual energy
electrical grid, which connects them all.
consumption.
The next generation of electrical grid –
We must move quickly as a nation to
widely known as "Smart Grid" – is an
secure our critical infrastructure and ensure
integration of advanced, two-way
that it can support vital emergency response,
communications systems and sensors into
military, economic, and social activities
the electrical transmission and distribution
during a crisis. Congress has recognized
network enabling utilities to optimize grid
that the vulnerabilities of the current
performance in real-time, provide incentives
electrical grid threaten our national
to consumers for reducing energy
resilience and, therefore, necessitate change.
The Smart Alternative: Securing and Strengthening Our Nation’s Vulnerable Electric Grid
2
[Type text]
The Reform Institute, June 30, 2008
Congress has only begun to explore, in the
delivering energy from massive generation
last two major energy bills, the potential of
sources that derive power from coal, nuclear
the next generation of power delivery
fission, oil, natural gas, hydro, geothermal,
through the modernization of the U.S.
solar, and wind sources. Electric power
electric grid. But complex jurisdictional
originates at these generation stations, travels
hurdles and a litany of regulatory and
along massive high-voltage power lines to
private-stakeholder interests still create
sub-generation transmission stations, and is
challenges for realizing the full deployment
ultimately distributed to the energy consumer
of the Smart Grid.
– or end-user. The electrical grid has served
Increasing the resilience of the electrical
its purpose well, but it quickly is reaching the
grid will require the data, technological
end of its design cycle as it is an inefficient
intelligence and capacity to manage
push system that offers little incentive to
electrical congestion, avoid overburdening
either the utility provider or consumer to
the system, and avert electrical outages even
monitor and conserve energy consumption.
as the
The
population
electrical
requires
power
greater
system in
quantities
the United
of quality
States
electricity.
entails over
Keeping
16,924
the power
electric
Electricity Generation and Delivery Process
on is the first step to
generating units
hardening the Nation’s energy-dependent
with more than 1,075 Gigawatts of
critical infrastructure. The electrical grid
generating capacity1 involving more than
must be able to successfully manage a
300,000 miles of transmission lines 2 and
disaster and rapidly return to a state of near
500,000 miles of distribution lines. 3 But the
normalcy in order to maintain the integrity
deficiencies of this current electrical grid are
of all dependent infrastructures.
inherent in its design. Electrical energy is
ordinarily consumed immediately
subsequent to its generation as it historically
BACKGROUND
The U.S. electrical transmission and
has been difficult and inefficient to store for
distribution system – installed many decades
prolonged periods. Having an unequal
ago – provides electricity to every aspect of
supply and demand of generated energy
American society. This system is the largest
creates the potential of overburdening and
machine in the world responsible for
causing extensive damage to the system. To
The Smart Alternative: Securing and Strengthening Our Nation’s Vulnerable Electric Grid
3
[Type text]
The Reform Institute, June 30, 2008
counter-act this deficiency, the electrical
grid is designed to disconnect at first sign of
an electrical imbalance. When the generator
disconnects it results in an electrical outage
– or blackout.
Despite being designed to mitigate
damage caused to the system and its users,
electric delivery interruptions and the
ensuing periods before power restoration
threaten our national security as our defense
capabilities are disabled, our economy is
weakened, and the lives of Americans who
depend on energy for basic needs –
including heating and cooling, as well as
emergency services – are placed in peril.
The
electrical grid
as we know it
was installed
at a time when
the current
massive
consumer
demand could
not have been
foreseen. The
dramatic
increase in the
number of new
and larger homes, rising urbanization, and
the widespread adoption of digital
technology and other energy-thirsty devices
has overloaded our electrical delivery
system and driven up costs as utilities search
for new sources of energy to meet demand.
The electric grid is further burdened by
public policies inhibiting the increase in
domestic energy production.
The most significant corollary to our
increased dependence on the electrical grid
is the increased consequences of power
fluctuations. Power fluctuations, which
were once merely an inconvenience, now
are a major grid vulnerability that threatens
our Nation’s security and cost tens of
billions of dollars in lost commerce each
year. Should the electrical grid become a
deliberate target of a terrorist attack, a
casualty of a natural disaster, or simply
malfunction, an overloading of the system
would create a ripple effect that could bring
our economy
to a standstill,
jeopardize our
national
security and
possibly cost
lives.
Blackouts
and power
quality issues
are not the
only reason for
concern. The
inefficiencies
of the energy sector also burden the
economy. Of all energy consumed to
produce electricity, only 30 percent reaches
consumers in the form of electricity, 4
transmission and distribution losses are
valued at more than $25 billion a year.5
Adding more generators only increases these
inefficiencies. Further exacerbating the
The Smart Alternative: Securing and Strengthening Our Nation’s Vulnerable Electric Grid
4
[Type text]
The Reform Institute, June 30, 2008
problem is the physical limitations of the
current grid. The aged grid has become so
problematic in its limitations that it is
incapable of employing new and renewable
energy generation sources (e.g., solar, wind,
hydro) at a capacity that justifies building
new generation plants powered by such
clean domestic energy. In some areas the
energy produced outweighs the transmission
capacity by 65 percent.6 There is a vast
need to increase not only the efficiency,
consistency, and capacity of our electric
infrastructure, but also its security.
Unfortunately, there exists little
economic incentive for utility companies to
address inefficiencies of the current grid.
Intuitively, making the electrical grid more
efficient would mean delivering the same
amount of usable electricity to the consumer
but requiring less costly initial energy input
to do so; that equates to selling the same
output at a lower price. Left without
incentive, utilities to date have preferred to
retain the same inefficient generation,
transmission, and distribution system to
maintain profit margins.
The increase in demand for electricity
and other sources of power is vastly
outpacing the increase in power supply. The
challenges and opportunities of the new
century dictate that we not rely on an
outmoded electrical grid system that is
nearing the end of its design cycle. Growing
the grid in the usual incremental manner
through a patchwork of improvements
provides only temporary relief to the
burdens facing the grid and merely
aggravates its vulnerabilities. For these
reasons and more, the current electrical grid
cannot continue to serve our national
strategic objectives, the demands of
American consumers, or the need to
improve our environment and mitigate
global climate change. It is static in its
design, inefficient, and limiting to a nation
that seeks to expand its use of renewable
energy resources. The existing grid is a
liability to our Nation’s security and
resilience.
MODERNIZATION - THE SMART
GRID
As the modernization of the domestic
electrical grid is paramount to the resilience
of the Nation, the centerpiece of this effort
should be the deployment and utilization of
a “futureproof” electrical system upgraded
with advanced communications, sensors and
diagnostic software commonly referred to as
the “Smart Grid.”
What is the Smart Grid?
The Smart Grid, in essence, is an amalgam
of communications and electrical
capabilities that allow utilities to understand,
optimize, and regulate demand, supply,
costs, and reliability. This advanced
technology allows electricity providers to
interact with the power delivery system and
determine where electricity is being used
and from where it can be drawn during times
of crisis or peak demand. The monitoring
capability of the Smart Grid serves to
improve grid resilience by empowering the
The Smart Alternative: Securing and Strengthening Our Nation’s Vulnerable Electric Grid
5
[Type text]
The Reform Institute, June 30, 2008
utilities to re-route electricity to areas that
have lost or are on the precipice of losing
power. More importantly, the real-time
diagnostic capability of a Smart Grid
enables utilities to predict and prevent
outages and power disturbances before they
occur.
The communications overlay of the
electrical system that comprises the Smart
Grid can be described more technically as a
“standard web services interface for new and
existing utility applications, the ability to
use any IP wide-area network for the data
communications backhaul, and an open
meter interface for connecting to in-home
devices such as thermostats, water and gas
meters, or any energy aware home area
network.”7
The Electric Power Research Institute
(EPRI) envisions the Smart Grid as a power
system that can incorporate millions of
sensors all connected through an advanced
communication and data acquisition system.
A system that will provide real-time analysis
by a distributed computing system that
enables predictive rather than reactive
responses to blink-of-the-eye disruptions
and is designed to support a changing
generation mix in a carbon constrained
world. It would allow for a more effective
and efficient participation by consumers in
managing their use of electricity. 8
Current Grid Deficiencies
In order to fully understand the benefits of
this advanced Smart-Grid capability, it is
constructive to comparatively analyze the
existing electrical grid. Unlike the Smart
Grid, the functional deficiencies of the
current electrical grid include, but are not
limited to, the following:







It is an inefficient push system that
requires utilities to flood the system
with electricity – much more than is
needed – to ensure reliability and
meet demand.
It is based on a consumption- and
revenue-based business model that
offers no incentive for utilities to
conserve energy.
It is woefully inadequate as its
“static” design does not allow
utilities adequately to monitor data
pertaining to electricity consumption
or outages, and thus respond and
recover in the wake of a catastrophic
event.
It places in peril the ability of our
military and homeland security
forces to fulfill their missions to
defend Americans.
It veils the true costs of electricity
until month’s end and, in turn, has a
limited ability to provide end-users
with the control to understand and
regulate their individual electricity
consumption.
It requires maintenance costs from
remote and automated
disconnects/reconnects and trips to
the field.
It causes a lapse of a significantly
higher number of minutes without
The Smart Alternative: Securing and Strengthening Our Nation’s Vulnerable Electric Grid
6
[Type text]
The Reform Institute, June 30, 2008


power incurred by end-users during
outages during the restoration
process.
It lacks the communications overlay
that would enable the expansion of
existing cyber-security capabilities.
It has a more significant carbon
footprint due to higher peak
demands, higher supply and
consumption, a lack of incentive to
conserve, and inability to utilize fully
the potential of renewable and
alternative sources of energy.
Each of these deficiencies cut adversely
against our Nation’s resilience in that the
current grid lacks the ability to sufficiently
protect itself and related critical
infrastructure, reduce our dependence on
foreign sources of energy, conserve energy,
capitalize on alternative sources of energy,
improve our environment, and lower enduser costs. Thus, modernization that would
improve efficiency and reliability would
have a stabilizing effect on the economy,
national security, and the energy-dependent
critical infrastructure.
Smart Grid Benefits
By contrast to the deficiencies of the
existing grid system, the Smart Grid is a
dynamic and more resilient electrical and
communications delivery system that
utilizes energy that the existing system
wastes through inefficiencies. The Smart
Grid creates incentives for conservation,
fortifies the reliability of our homeland and
military security forces, improves the carbon
footprint of the grid, reduces systemic
maintenance, prevents outages and mitigates
restoration in the wake of those outages that
do occur, and improves reliability of supply.
RESILIENCE AND NATIONAL
SECURITY
The electrical transmission and distribution
system is vital to our national security and
global economy. Improvements to the
electrical grid have successive benefits to
the Nation’s security as an effort to exploit
the vulnerabilities of this electrical grid
would have a catastrophic impact.
Economic turmoil would lie in the wake of
cascading blackouts, and total power loss
would render our critical infrastructure and
essential services nearly useless. The
energy resilience of the Smart Grid means
that hospitals, first responders, fire stations,
police departments, and homeland security
and military forces always possess the
requisite power to fulfill their missions of
protecting and caring for Americans.
Businesses would also be able to continue
operations in the event of a crisis,
moderating the adverse consequences of a
catastrophic event on the economy.
Notable anecdotal evidence of the
fragility and vulnerability of the U.S.
electrical grid system can be found with the
power outage five years ago in the
Northeastern United States and parts of
Canada. On August 14, 2003, a
combination of high heat and demand
caused a sagging high-voltage power line
The Smart Alternative: Securing and Strengthening Our Nation’s Vulnerable Electric Grid
7
[Type text]
The Reform Institute, June 30, 2008
near Cleveland, Ohio to come in contact
with trees that had not been trimmed by the
local utility. The U.S.-Canada Power
System Outage Task Force later concluded
that this contact caused the first of a series
of cascading power failures resulting in a
loss of electrical power to approximately 50
million people located in a 9,300-squaremile area throughout the region. A simple
contact of a high-voltage power line caused
more than 265 power plants and 500
generating units to shut down, including 22
nuclear plants. Full power was not restored
from these sources for a period of nearly two
weeks.9
The consequences of the summer of
2003 power failure were significant, as
delivery systems for oil and water were shut
down, rail and air travel was disrupted,
homeland security and communications
capabilities were unavailable, and lives were
placed in peril as residential homes and
businesses were without air conditioning.
And, of course, the negative impact on
productivity caused a drag on the economy.
While some may argue that the grid
functioned as designed in 2003 in that it
sensed a problem and disconnected to avoid
greater damage, most would agree that this
incident served as a warning to the U.S. that
it must move to modernize its methods of
energy delivery and make the system more
resilient. This outage was mild in that it did
not cause damage to transmission or
distribution infrastructure, which allowed
for the system to be restored in a fairly short
period of time. However, a natural disaster,
or a physical or cyber attack certainly would
cause more damage and result in prolonged
outages.
The employment of Smart Grid
technologies would minimize the
consequences of an attack or catastrophic
event by providing energy providers with an
enhanced ability to identify the location of
the failure and quickly re-route electricity to
locations where demand is most critical.
This advanced capability would serve to
shorten power restoration times, which is the
essence of resilience. By mitigating the
consequences of an attack affecting the
electrical grid, the Smart Grid would serve
as a deterrent for such attacks, thereby
strengthening and insulating our energy
dependent critical infrastructure.
The U.S. Department of Defense (DOD)
is the single largest user of energy in the
United States – consuming more than 3.8
billion kilowatt-hours (kWh) of electricity
each year. That total represents nearly one
percent of the total electricity consumption
of the Nation, and 75 percent of the Federal
Government’s consumption. The DOD’s
principal concerns are not the availability of
energy to ensure the reliability of its
missions, but rather the fragility of the
existing electrical grid and its susceptibility
to extended outages. The DOD’s national
strategic and command authorities rely on
99 percent of their energy supply from
“outside the fence.”10
In its February 2008 report, the Defense
Science Board Task Force Report found that
“critical national security and Homeland
The Smart Alternative: Securing and Strengthening Our Nation’s Vulnerable Electric Grid
8
[Type text]
The Reform Institute, June 30, 2008
defense missions are at an unacceptably high
to enable more sophisticated grid protection
risk of extended outage from failure of the
software and encryption to thwart attacks on
grid.” The report indicates that the grid is
power infrastructure. In this manner the
not designed to withstand a coordinated
Smart Grid offers greater security for our
multi-pronged attack, and insurgents in Iraq
critical infrastructure as it ensures that
and Afghanistan commonly and effectively
power is readily available while anticipating
have coordinated attacks on the power grid
and avoiding threats to the integrity of the
as part of their
system.

11
tactics.
The deployment of
CONSUMER
The deployment of SmartSmart-Grid
EMPOWERMENT
Grid technologies would
technologies would
The Smart Grid
provide the necessary
provides enormous
provide the necessary
reliability to DOD to
benefit to the energy
reliability
to
DOD
to
fulfill
its
fulfill its critical
consumer, besides
missions, as well as
those of national,
critical missions, as well as
reduce the agency’s
economic, and
reduce
the
agency’s
energy
energy consumption
environmental
and costs. All of these
consumption and costs. All of security. Some
benefits serve to make
experts estimate that
these
benefits
serve
to
make
our Nation more
the existing
secure and resilient.
inefficient electrical
our Nation more secure and
An important
grid system costs
resilient.
subcomponent of our
consumers hundreds
national security that
of billions of dollars
can be addressed by a
per year in hidden

commitment to the
costs and waste. In
implementation of the
a global economy
Smart Grid is cyber security. Committing to
that provides consumers with endless
the Smart Grid enables the architecture of
product choices and prices, they are left
the grid to be designed with security in
guessing what type of energy they consume,
mind. The extensive amount of data that
and how much it costs when they consume
can be utilized by the Smart Grid in real
it. The Smart Grid, in essence, grants
time means that a comprehensive cyber
consumers control of their personal energy
security program can be integrated from its
footprints, allowing them to choose not only
inception. The Smart Grid provides an
when they consume power, but what source
enhanced bandwidth and computing power
of power they wish to consume. This is
The Smart Alternative: Securing and Strengthening Our Nation’s Vulnerable Electric Grid
9
[Type text]
The Reform Institute, June 30, 2008
achieved through the demand response
capabilities of the Smart Grid. Demand
response ensures that supply and demand is
balanced. Demand response allows
consumers to place megawatts back on the
grid at times of peak demand, and reduces
the need for more generation plants, thereby
reducing costs to consumers and eliminating
waste.
During peak hours of the day, for
example, a consumer will be able to see that
the price of running a dishwasher or setting
a thermostat at a certain temperature may be
high during a period of peak demand and,
therefore, may choose to use power during
non-peak hours. Such a scenario improves
the stability of the grid and reduces waste.
When fully implemented, the Smart Grid
will provide consumers with the ability to
sell power from a plug-in vehicle, solar
panels, or any type of stored energy back
into the grid for general consumption, and
choose what type of energy or mixture
thereof they desire to purchase from the
grid. The real time, two-way capacity of a
Smart Grid offers consumers more
flexibility and the freedom to tailor demand
response options to their own needs –
instead of turning air conditioners
completely off multiple times a day, smart
appliances can be turned down and managed
through a ready ”gateway” system that
maximizes consumer control.
With the Smart Grid, consumers are able
to “program demand-response meters from
their homes to grant permission”12 to
utilities to adjust their power depending on
systemic need. This empowers utilities to
readjust and reroute supply depending on
demand, and raise the temperature slightly
in your house, or alter the way your
appliances are performing to suit the interest
of the supply source. While consumers
would not have to submit their systems to
this, they would have the option if they
desire.
All of these consumer benefits when
taken as a whole will yield the most
important function of a consumer-friendly
electrical grid system, which is a
dramatically more reliable power delivery
system susceptible to fewer power
fluctuations and blackouts. As discussed
throughout this paper, the occurrence and
length of blackouts are threats to our Nation
and to consumers who depend on reliable
electricity for their everyday lives and wellbeing.
When demand overwhelms capacity due
to a catastrophic event or simple overload,
the system can be smart enough to alter its
behavior and adjust accordingly. This is
resilience. And consumers willing to alter
their behavior can be rewarded through
incentives.
IMPACT ON INDUSTRY
As U.S. industry in the digital age becomes
more dependent on high-quality energy
delivery, our economic security becomes
more dependent on reliable energy. For this
reason, we must promote energy continuity
and reliability.
The Smart Alternative: Securing and Strengthening Our Nation’s Vulnerable Electric Grid
10
[Type text]
The Reform Institute, June 30, 2008
The full deployment of Smart-Grid
energy security that industry requires to
technologies will mitigate dramatically the
sustain an energy dependent economy.
billions of dollars lost by American
Like with residential consumers of
businesses each year as a result of the power
electricity, businesses will reap similar
fluctuations, congestions, and failures of the
benefits from Smart-Grid demand response
current electrical grid. Increasing energy
capabilities. But by consumer and corporate
efficiency and reliability will be crucial to
empowerment, as well as its environmental
improving the
impact, the Smart Grid is
competitiveness of
creating new markets as

American businesses in a
private industry develops
global economy.
energy efficient and
The Department of
The capacity
intelligent appliances, smart
Energy
predicts
that
optimization offered by
meters, new communications
the Smart Grid will
capabilities, and passenger
Smart Grid
improve energy delivery
vehicles. The Department of
deployment
will
open
reliability, lower business
Energy predicts that Smart
costs, and reduce waste.
a $100 billion market Grid deployment will open a
While residential
$100 billion market in smart
in
smart
technologies
consumers suffer what
technologies.14 These new
typically amount to minor
and create $2 trillion market technologies will
inconveniences resulting
lower consumer and
per
year
additional
from power blackouts, the
corporate electricity costs,
impact of power
and have a dramatic impact
GDP
inconsistency on industry
on the environment through
can be devastating. One
efficiency and resource
2005 power outage in
utilization gains. The same
southern California disrupted an estimated
study suggests that implementation of the
13
$75 billion dollars in economic activity.
Smart Grid should create $2 trillion per year
Businesses necessitate not only electrical
additional GDP.15 Thus, industry is not only
resilience, but electrical continuity of the
made more competitive and secure by the
sort the current grid cannot provide.
adoption of the Smart Grid, but it is afforded
Massive power outages are occurring at an
new market opportunities.
unprecedented frequency and industry is an
unfortunate casualty. The Smart Grid’s
ENVIRONMENTAL BENEFITS
ability to optimize system reliability and
The environmental impact of Smart Grid
resume electrical normalcy in short order, or
deployment is multi-faceted, but often
avoid a disruption entirely, will provide the
difficult to quantify – this despite studies
The Smart Alternative: Securing and Strengthening Our Nation’s Vulnerable Electric Grid
11
[Type text]
The Reform Institute, June 30, 2008
projecting a 5:1 return on investment. But
for the most part, the returns from Smart
Grid technologies in the form of positive
environmental benefits are often intangible
and realized by a dispersed set of
beneficiaries. Justification for Smart Grid
adoption suffers from an inability of its
advocates to make “rate-of-return”
arguments on its behalf. But its
environmental benefits cannot be denied.
According to the Modern Grid Initiative,
every kilowatt-hour saved by the
efficiencies of the Smart Grid will result in
reduced expenditures on pollution controls
at power plants.16 One study by the Electric
Power Research Institute suggests that
implementation of the Smart Grid could
reduce CO2 emissions by as much as 25
percent by the year 2020 through improved
electrical efficiency. 17 As some experts
argue, the cleanest form of energy is the
energy that is saved.
A stable environment is critical to the
resilience of any nation. By improving the
efficiency of our energy delivery systems
and diversifying fuel sources – primarily to
cleaner fuels and technologies – we will
improve the environment and enhance our
energy sustainability, thereby mitigating the
adverse consequences caused by a changing
climate. The Smart Grid can be a critical
component in improving both our climate
and national resilience.
The Smart Grid’s system optimization
and demand response capabilities, as well as
its conservation incentives serve to reduce
energy consumption, thereby lowering the
CO2 emissions caused by the generation of
energy. Because of its ability to manage
energy variability, particularly with wind
power, the Smart Grid enables and
encourages the development of alternative
fuel sources and their integration on the grid.
This added market for alternative and
renewable energy suppliers also will serve to
lower carbon emissions by replacing a
percentage of the fossil fuels currently
utilized. And by improving the utilization of
the exiting grid assets through smarter
energy management, the Smart Grid also
reduces the need for new generating units
built to meet increasingly higher peak
demand.
The consumer benefits of Smart Grid
appliances and vehicles also contribute
significantly to the improvement of the
Nation’s environment. “Smart” appliances,
including plug-in hybrid vehicles and energy
efficient heating and cooling, have the added
benefit of again lessening CO2 emissions
and having a less detrimental impact on the
global environment. These new
technologies will communicate with the grid
and be capable of powering down when
sensing a stress on the system. This will
reduce the occurrences of adverse grid
events and conserve energy.
IMPEDIMENTS TO DEVELOPMENT
Despite its projected overwhelming return
on investment, the deployment of the Smart
Grid indubitably will not be realized without
traversing significant regulatory and
stakeholder challenges. Our Nation’s
The Smart Alternative: Securing and Strengthening Our Nation’s Vulnerable Electric Grid
12
[Type text]
The Reform Institute, June 30, 2008
electrical transmission and distribution
addition, the Smart Grid – or any grid
system is regulated mostly on a state-byefficiency capability for that matter – is a
state basis and involves the participation of a
double-edged sword for energy providers, as
litany of stakeholders – state and federal
their business model dictates selling the
regulators, utilities, consumers, investment
maximum amount of energy possible
entities, energy suppliers, and infrastructure
without an incentive to conserve. Thus,
providers. The implementation of the Smart
regulators must devise a system of benefit
Grid is a process that will
sharing to provide incentive

take several years and not
to all stakeholders.
without a coordinated effort
Private industry has
It is the policy of
among these stakeholders.
realized the market
Because transmission
the United States to opportunities presented by an
lines often cross state, and
advanced electrical delivery
support the
sometimes national borders,
system and has taken action.
a comprehensive
modernization of the Currently there are efforts
commitment to
underway across the country
nation’s
electricity
implementation of the Smart
to research and conduct test
Grid is required to become a
beds that, when taken as a
transmission and
reality. While the Federal
whole, have the potential to
distribution
system
Government regulates
become the Smart Grid.
interstate transmission, the
Many of these efforts
to maintain a
bulk of transmission occurs
involve the utilization of
reliable
and
secure
intrastate and is regulated
“smart meters” on residential
accordingly. Only through
homes and businesses.
electricity
collaboration among all
Smart meters – a component
infrastructure
.
.
.
.
stakeholders can all the
of the Smart Grid – possess
benefits of the Smart Grid be
the advanced energy

achieved.
consumption monitoring
It is essential to the
capability of the Smart Grid,
realization of the Smart Grid that state and
without the total integration of coordinated
federal regulators take a leadership role in
communications devices. Smart meters tied
its deployment. Because the design of the
to low-bandwidth, high-latency systems that
Smart Grid places energy consumers – both
are addressable only a few times a day do
residential and industry – as the primary
not offer the same profound empowerment
benefactors of lower costs and energy
of the consumer as does the Smart Grid.
security, it is the utility companies that must
While smart metering is certainly an
be compelled to invest and participate. In
improvement of the current electrical
The Smart Alternative: Securing and Strengthening Our Nation’s Vulnerable Electric Grid
13
[Type text]
The Reform Institute, June 30, 2008
transmission and distribution system, it lacks
the scope and far-reaching societal benefit
potentially offered by adoption of the Smart
Grid.
Congress, in the Energy Policy Act of
2005, took a significant first step toward
modernization of the U.S. electrical grid by
requiring that states consider implementing
smart-metering technologies for residential
and small commercial customers. However,
in the wake of that Act the general
ambiguity over which costs correlate to
transmission, and hence federal regulation,
and which costs are distribution related, and
thus subject to state jurisdiction, left a
regulatory uncertainty that served as a
deterrent for Smart Grid investment.18
Congress again addressed grid
modernization in the Energy Independence
and Security Act (EISA) of 2007 when it
declared, “It is the policy of the United
States to support the modernization of the
[N]ation’s electricity transmission and
distribution system to maintain a reliable
and secure electricity infrastructure . . . .”
EISA is a significant public policy step
forward for several reasons. First, the law is
a pronouncement of national policy
signaling to all stakeholders that a smart
electrical grid is the direction in which the
Nation is progressing. This Congressional
action provides private industry with the
confidence needed to invest in and work
toward the realization of the Smart Grid and
the optimization of its capabilities. Second,
Congress also indicates in EISA that federal
incentives would be provided in the form of
federal funding for investment in the Smart
Grid. Third, the law organized the
responsibilities at the federal level by
establishing several entities accountable to
the Department of Energy. And, fourth,
EISA encourages state regulators to consider
requiring utilities to use Smart-Grid
technologies.19
While EISA may have opened doors for
the possibility of realizing a Smart Grid,
utilities – which rely on maximizing their
energy sales – and private industry are
apprehensive about investing in expensive
systems that may serve to affect their bottom
line at the same time that the possibility of
carbon emissions legislation looms at the
federal and state levels. If passed, federal
legislation mandating either a cap and trade
system or a carbon tax could result in
significant costs for industry. Thus, it is
imperative that investment in the Smart Grid
by utilities and private industry be rewarded
by providing carbon credits for the resulting
emissions reductions realized downstream –
particularly to the extent that such
investment is in enabling infrastructure for
emissions-reducing technologies such as
plug-in electric hybrid vehicles. It is
unrealistic to believe that energy providers
can absorb the losses associated with federal
and state emissions mandates and
simultaneously expect significant private
investment in advanced electricity delivery
technologies.
The Smart Alternative: Securing and Strengthening Our Nation’s Vulnerable Electric Grid
14
[Type text]
The Reform Institute, June 30, 2008
SUMMARY AND CONCLUSIONS
Our Nation is at a crossroads as our energy
dependence and vulnerable critical
infrastructure become significant liabilities
to our security and resilience. The current
electrical grid is outdated and inefficient and
the demand for reliable electricity is
increasing at a rate that overburdens the
current electrical system. The consequences
of the increasing number of power
fluctuations and failures illustrate a
microcosm of the chaos that looms over our
economy and national defenses should a
deliberate attack on the electrical grid or a
natural disaster take place.
The Smart Grid is designed to optimize
efficiency and stability. The adoption and
implementation of the Smart Grid would
address many current societal concerns
through empowering consumers, securing
our economy, hardening our national
security, and lessening our impact on the
environment. The scope of its benefits
justifies a regulatory and private-sector
commitment to the implementation of Smart
Grid technologies. Whatever the means, the
practical adoption and implementation of the
Smart Grid should be a priority as we
advance further into the digital age.
The domestic electric grid is so
fundamentally plaited within all aspects of
American life that any discussion of
building a resilient nation must begin with
securing and strengthening our vulnerable
electric grid. The Smart Grid will enhance
America’s resilience by strengthening the
ability of our energy infrastructure to
withstand a catastrophic event without
serious disruption to critical systems and
activities, making the power grid a less
attractive target for our enemies.
Implementing a next-generation grid will
also be instrumental to developing a secure
and sustainable energy system. The Smart
Grid demonstrates the importance of
innovation, collaboration and leadership in
homeland and energy security.
ENDNOTES
1
Electric Power Annual with data for 2006. “Existing
Capacity by Energy Source” Energy Information
Administration. October 2007.
<http://www.eia.doe.gov/cneaf/electricity/epa/epat2p
2.html>
2
Abel, Amy. Smart Grid Provisions in H.R. 6, 110th
Congress. CRS Report for Congress. December 20,
2007.
3
The Digital Power Group. Critical Power. August,
2003.
4
National Energy Technology Laboratory. The
NETL Modern Grid Initiative Powering our 21stCentury Economy: Modern Gird Benefits. Study
Conducted for the U.S. Department of Energy, Office
of Electricity Delivery and Energy Reliability.
August 2007.
5
Ibid
6
Power Troubles: Transmission Lines Can’t Handle
Demand. Watertown Daily Times. February 27,
2008.
7
Echelon Extends Smart Grid Solutions to Homes,
Buildings and Municipalities. January 22, 2008.
8
Michael W. Howard, Ph.D., P.E., Senior Vice
President, R&D Group, Electric Power Research
Institute, Facilitating the Transition to a Smart
The Smart Alternative: Securing and Strengthening Our Nation’s Vulnerable Electric Grid
15
[Type text]
The Reform Institute, June 30, 2008
Electric Grid, Testimony Before the House Energy
and Commerce Subcommittee on Energy and Air
Quality. May 3, 2007.
9
U.S.-Canada Power Systems Outage Task Force,
Final Report on the August 14, 2003 Blackout in the
United States and Canada: Causes and
Recommendations. April, 2004.
Kenneth Nahigian serves as a Senior Advisor to
the Reform Institute's Center for Energy and
Environmental Progress and is General Counsel
to Nahigian Strategies, LLC – a communications
and policy strategy firm. He previously served
on the staff of the U.S. Senate Committee on
Commerce, Science and Transportation.
10
Defense Science Board. More Fight - Less Fuel.
Report of the Defense Science Board Task Force on
DoD Energy Strategy. February 2008.
11
Ibid.
12
Electric Policy Research Institute. Electricity
Sector Framework for the Future: Achieving the 21st
Century Transformation. August 6, 2003.
13
Banker, Philip. “Smart Grid: A Digital Age for
Electrical Distribution.” Presentation. February,
2008.
The Reform Institute is a
not-for-profit 501(c)(3)
educational organization,
representing a unique,
independent voice working
to strengthen the foundations of our democracy and
build a resilient society. The Institute champions the
national interest by formulating and advocating for
valuable, solutions-based reforms in vital areas of
public policy, including homeland and national security,
energy independence and climate stewardship,
economic opportunity, immigration policy, and
government and election reform.
14
Electric Policy Research Institute. Electricity
Sector Framework for the Future: Achieving the 21st
Century Transformation. August 6, 2003.
15
Ibid.
16
National Energy Technology Laboratory. The
NETL Modern Grid Initiative Powering our 21stCentury Economy: Modern Gird Benefits. Study
Conducted for the U.S. Department of Energy, Office
of Electricity Delivery and Energy Reliability.
August 2007.
17
Electric Policy Research Institute. Electricity
Sector Framework for the Future: Achieving the 21st
Century Transformation. August 6, 2003.
18
The Digital Power Group. Critical Power. August,
2003.
19
The Energy Independence and Security Act (EISA)
of 2007(P.L. 110-140).
The Smart Alternative: Securing and Strengthening Our Nation’s Vulnerable Electric Grid
16